Thursday, October 20, 2011

Breadth Thrust

Click on Chart to Enlarge

I did not include the stock prices on this chart for clarity sake, but this is the NYSE advancers-decliners data with a 63 and 126 day moving average. That represents 1 and 2 quarters of the trading year, respectively. The purple horizontal line is the zero line. Notice that the green 126 day average moved above zero in April of 2009 and remained there for the entire bull market. Now last month it dipped below zero. I take that as a possible breadth signal of a longer term trend change. Right now the green line is back right around zero, so let's keep an eye on how it behaves.

Also I drew some overbought/oversold horizontal lines to see where the peaks of the breadth thrusts were over the past 3 years. Currently the market is right near a 10 day breadth thrust extreme. These have happened in 2 distinct contexts over the last few years. Either the market was coming off a corrective low and was beginning a powerful new multi month trend OR it occurred a little before a peak leading to a sizable correction.

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